Market Highlights:
- Non Farm Payrolls Disappoint
- Silver Lining for Canada’s Unemployment
- ECB Hints at an End to Stimulus
Non Farm Payrolls Disappoint
US non-farm payrolls were released this morning, coming in with a worse-than-expected decrease of 190,000 jobs for the month of October. This is the second month in a row that the data has posted a negative surprise, which is adding to the recent uncertainty permeating global markets as to the prospect of further growth in the near term. The NFP has largely been ignored by investors over the past couple of months as equity markets continued their torrid run of form since last March’s lows—even on worse-than-expected results. Equity markets haven’t let today’s reading slip through the cracks, however: the momentum the Dow has been gaining over the past couple of days has been stopped in its tracks. Dow futures are down over half a percentage point in pre-market trading, and it looks like the 10,000 level that was broken yesterday is not going to be the buying opportunity that many thought it would be. The more compelling piece of data this morning was actually the US unemployment rate, which has finally topped the 10% mark, coming in at 10.2% versus expectations of a 9.9% reading. Many economists have been calling for this level to be reached for some time now, but the psychological impact of a double digit jobless rate cannot be ignored. Even more disconcerting for the US economy is the fact that this number does not reflect the thousands of discouraged workers who are not actively looking for a job. Taking all of this into account, it appears that if a recovery is in the cards for the world’s largest economy, it will be a jobless one. The US dollar has managed to eke out small gains on the news this morning against most majors save the Japanese yen.
Silver Lining for Canada’s Unemployment
Canada also released unemployment data this morning, posting a surprise loss of 43,000 jobs on expectations of a gain of 10,000. This reading also pushed our nation’s unemployment rate up to 8.6%, showing that our close link to the US is a bond that cannot be ignored. On a more optimistic note, however, all of the jobs lost in the month of October were part-time positions. This could possibly mean that companies are moving away from hiring temporary workers and holding on to their current staff in the hopes of better things to come in the new year. The rate of job losses in the country is also starting to slow, indicating that recovery probably won’t be swift, but that the bottom is in for now. The Canadian dollar is marginally weaker this morning from yesterday’s close.
ECB Hints at an End to Stimulus
After leaving interest rates on hold yesterday, ECB president Jean Claude Trichet was sounding almost optimistic on the European economy, saying that, although things still aren’t great, the latest data suggests that recovery is just around the corner. The most intriguing soundbite to come from the post-decision communiqué was Trichet’s comment that liquidity measures employed by the ECB to keep interest rates low can be “phased out in a timely manner.” This could definitely be the first step in the ECB’s exit strategy from their current accommodative position, making them the first of the big central banks to even hint at plans for withdrawing liquidity. The next step for the ECB could be to raise interest rates, but with the European economy still in a fragile state, the chances of that happening in the next few months are remote, as inflation is still nonexistent, and a shock like that could pull the EU back into recession in a hurry. Regardless, with the Fed on hold for a while, the BoE expanding their QE program, and deflation running rampant in Japan, the ECB could be the first of the big central banks to hike rates in 2010. The euro has remained firm against the dollar on these comments, even in light of today’s poor employment figures.
After one of the most data-heavy weeks we have seen in months, we get a bit of a reprieve next week with only a few high-impact releases to note. The Bank of England releases their inflation report on Wednesday while the Aussies release their employment figures on the same day. These releases will be somewhat subdued by the US and Canadian holidays next Wednesday as liquidity will be poor.
Have a great weekend
By Brendan McGrath, Senior FX Trader
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